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Income Risk and the Benefits of Social Insurance: Evidence from Indonesia and the United States

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  • Raj Chetty
  • Adam Looney

Abstract

This paper examines the welfare consequences of social safety nets in developing economies relative to developed economies. Using panel surveys of households in Indonesia and the United States, we find that food consumption falls by approximately ten percent when individuals become unemployed in both countries. This finding suggests that introducing a formal social insurance program would have small benefits in terms of reducing consumption fluctuations in Indonesia. However, in contrast with households in the U.S., Indonesians use costly methods such as reducing human capital investment to smooth consumption. The primary benefit of social insurance in developing countries may therefore come not from consumption smoothing itself but from reducing the use of inefficient smoothing methods.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11708.

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Date of creation: Oct 2005
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Publication status: published as Ito, T. and A. Rose. Fiscal Policy and Management in East Asia: NBER East Asia Seminar on Economics 16. Chicago: University of Chicago Press, 2007.
Handle: RePEc:nbr:nberwo:11708

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  1. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Harvard Institute of Economic Research Working Papers 1727, Harvard - Institute of Economic Research.
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  3. Paul Gertler & Jonathan Gruber, 2002. "Insuring Consumption Against Illness," American Economic Review, American Economic Association, vol. 92(1), pages 51-70, March.
  4. Raj Chetty & Adam Looney, 2005. "Consumption Smoothing and the Welfare Consequences of Social Insurance in Developing Economies," NBER Working Papers 11709, National Bureau of Economic Research, Inc.
  5. Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
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Cited by:
  1. Christiano, Lawrence J. & Trabrandt, Mathias & Walentin, Karl, 2010. "Involuntary Unemployment and the Business Cycle," Working Paper Series 238, Sveriges Riksbank (Central Bank of Sweden), revised 01 Jun 2012.
  2. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "DSGE models for monetary policy analysis," CQER Working Paper 2010-02, Federal Reserve Bank of Atlanta.
  3. Yasushi Iwamoto & Miki Kohara & Makoto Saito, 2009. "On the Consumption Insurance Effects of Long-term Care Insurance in Japan: Evidence from Micro-level Household Data," Global COE Hi-Stat Discussion Paper Series gd09-109, Institute of Economic Research, Hitotsubashi University.
  4. Pande, Rohini, 2007. "Understanding Political Corruption in Low Income Countries," CEPR Discussion Papers 6273, C.E.P.R. Discussion Papers.
  5. Raj Chetty & Adam Looney, 2005. "Consumption Smoothing and the Welfare Consequences of Social Insurance in Developing Economies," NBER Working Papers 11709, National Bureau of Economic Research, Inc.
  6. Kim Jungho & Alexia Prskawetz, 2009. "External Shocks, Household Consumption and Fertility in Indonesia," Working Papers 0604, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
  7. World Bank, 2006. "Making the New Indonesia Work for the Poor," World Bank Other Operational Studies 8172, The World Bank.
  8. Lawrence J. Christiano, 2011. "Comment on "Unemployment in an Estimated New Keynesian Model"," NBER Chapters, in: NBER Macroeconomics Annual 2011, Volume 26, pages 361-380 National Bureau of Economic Research, Inc.
  9. Carlos medina & Jairo Núñez & Jorge Andrés Tamayo, 2013. "The Unemployment Subsidy Program in Colombia: An Assessment," Borradores de Economia 750, Banco de la Republica de Colombia.
  10. Bruno Rocha, 2010. "At Different Speeds: Policy Complementarities and the Recovery from the Asian Crisis," Working Papers id:3294, eSocialSciences.

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